The Rise and Rise of Indian Logistics Infrastructure

Indian logistics infrastructure was unorganised and fragmented for a long time. Interestingly it is a business which is under massive reorganisation to serve the ever-increasing need of the modern businesses.

Also being touted as the country’s ‘sunshine industry’, the Indian logistics sector is readying itself to move from its present unorganized, fragmented business model to an organized, regulated structure. And, there’s a lot happening to make this possible.

Supply chain management is transforming with the help of evolving technology very fast as the need of the on demand economy is speed.  We want our lunch ordered online almost immediately; we cannot wait much for an online cab. We need goods and services fast and this needs quick response from supply chain management system.

From supercharged manufacturing activities, tremendous growth in the e-commerce sector, and a striking rise in consumer demands, to name a few, there are many growth drivers that are putting the spotlight on domestic logistics. Let’s dive into some factors that are causing the Indian logistics sector to flourish and grow.

E-Commerce Boom Is Propelling the Demand for Indian Logistics Infrastructure

There are few consumers today who has not bothered about Amazon or Flipkart at all. Triggered by factors like easy accessibility of cheaper internet data, and increasing penetration of low-cost smartphones, the e-commerce industry in India is witnessing a phenomenal growth momentum over the past few years.

The remarkable growth rate is also being bolstered by major drivers like the availability of high-quality products, the ease of placing orders over the internet, the convenience of doorstep delivery, and flexible payment modes, which, as a whole, are heightening customer experiences like never before.

With the on-demand economy skyrocketing in recent times, the total forecasted e-commerce business in India, as revealed in a joint report published by Google and the Boston Consulting Group, is expected to reach 40 to 45 billion US dollars by 2020 from the present figure of around 18 billion US dollars.

The Google-BCG report also predicts the total Indian spending through digital transactions to nearly triple its volume over the next two to three years from the current 40 billion US dollars to about 100 billion US dollars.

In order to cater this exponential growth rate, large-scale logistic infrastructures are coming up across the length and breadth of the country, which are serving as crucial growth levers for the e-commerce industry, and also as key differentiators in terms of driving customer experience and satisfaction levels.

FDI in E-Commerce to Boost Demand for Logistics Spaces

As the government opens the door for 100 percent foreign direct investment (FDI) in e-retailing, many experts are of the opinion that this development will tremendously bolster the demand for commercial spaces, which would eventually uplift the real estate sector in the country.

The decision to permit 100 percent FDI in e-commerce is of immense significance, as increased investments in the e-retailing segment can drastically propel the demand for logistics and warehousing real estate spaces in both metro cities, as well as in the Tier 2 and Tier 3 clusters, where land is still available at reasonable prices. This is definitely a huge positive signal for the overall realty sector in India.

The Emergence of Tier 2 and Tier 3 Cities as Growth Centres for Logistics

Usually, the Indian logistics service providers have excellent reach in metros cities, but they lack proper infrastructure in Tier 2 and Tier 3 cities of the country, which are also immensely potential e-commerce markets, positioned to comprise nearly 45 percent of the total customer base by 2020.

This burgeoning e-commerce market in the country’s Tier 2 and Tier 3 cities is fuelling the need for more customer-centric retailing that integrates metro-city-like facilities such as timely delivery of products and easy returns expedited through improved customer service.

As a result, both traditional logistic players and new entrants are increasingly foraying into these Tier 2 and Tier 3 markets, setting up high-tech warehousing infrastructures and other big-ticket logistic projects, which, in turn, are significantly boosting the demand for real estate in these satellite cities.

The Government’s Mega Push for Logistic Infrastructure Development

In the recently presented Union Budget 2018, Finance Minister Arun Jaitely raised the budgetary allocations for infrastructure by 25 percent, a massive push that clearly indicates the government’s vision to monetize the infrastructure sector.

The Finance Minister also mentioned that the cabinet has approved the ambitious Sagarmala and Bharatmala schemes, which have been launched to holistically strengthen the country’s infrastructure networks. The progress of these two flagship infrastructure programmes will be monitored by the road transport, highways, and shipping ministry, Mr. Jaitely said.

The Bharatmala scheme has been designed to facilitate A1 road connectivity around port areas across India, which will enable the seamless movement of freight and cargo in a few years from now. Under this “umbrella” programme, the government has already outlined 2,100 kilometers of road network, spanning along the country’s 7,500 km coastline.

The Sagarmala scheme, on the other hand, is a Rs.16-lakh-crore project that incorporates various port development programs like mechanization and modernization. The revamping of major ports under Sagarmala will ‘fix’ crucial infrastructure issues, which is expected to supercharge the development of industrial clusters around Indian ports.

Strengthening of Maritime Infrastructure

India, with its 7500 km of coastline and over 14000 km of waterway, is ranked 16th in the world among the maritime countries. More than 70 percent of the country’s trade value moves through maritime transport, which makes the domestic maritime industry the backbone of India’s economy and growth.

The Government of India, in order to tap into the enormous growth potential of the emerging maritime sector, is investing a lot to identify and strengthen maritime infrastructure so that transportation through waterways can be increased, and cargo handling capacities in Indian seaports can be escalated.

On the same development lines, the government’s concerned ministries are also working hard to attract both domestic and international investors, who can explore numerous business opportunities that diverse components of the country’s maritime sector have in store for them.

A solid port-rail network is also being created by the government, which will be administered by the state-owned Port Rail Connectivity Corporation. The primary aim of the port-rail network is to establish smooth connectivity between the country’s domestic ports, and various industrial hubs, through rail routes.

Focused port infrastructure development projects like the port-rail network and Sagarmala can help to reduce logistics costs, and ensure seamless movement of maritime cargo, which will significantly accelerate the growth of India’s economy, the Government of India said.

Final words

The granting of infrastructure status to the Indian logistics sector, and the combined growth momentum of infra, real estate, and retail, besides directly boosting growth, are also expected to create a variety of job opportunities for young India. These factors are leading the sector to a brighter future, which will also strengthen the country’s economy in the years to come.